Crowdcheck Blog
Insights and information for online capital formation
As previously identified in a CrowdCheck investor alert here, a significant number of companies that have raised funds under Regulation Crowdfunding are no longer in business. That is to be expected. Early stage companies have a high rate of failure, and investors should understand that risk before investing.
It is a general principle that a business failure itself is not fraud. Maybe revenues never grew the way the company thought. Perhaps larger competitors entered the space and out-competed the company. Maybe the company could not effectively scale its operations to bring down its cost of revenue. These, and an almost infinite variety of factors, can lead to…
This entry is filed under Crowdfunding, Fraud, Section 4(a)(6)
All companies that accept investments under Reg CF need to provide an annual update to their investors, to be filed on the SEC’s EDGAR system on Form C-AR and posted on the company's own website. It’s really important that as an investor, you know what the company has done with your money in any given year.
We searched for all companies that completed a successful fundraising (filed a Form C-U), from the date Regulation CF launched in 2016 to April 30, 2017, and found 29.3% of them did not file a Form C-AR or post an annual report on their website, meaning approximately one in three investors did not receive any updates from the company they invested in. In…
This entry is filed under Crowdfunding, Disclosure, Section 4(a)(6), Blog
We are doing a new series on Investor Alerts, focusing on what investors should pay particular attention to when investing in early stage companies. Today’s issue is whether a company is in Good Standing. The SEC has highlighted this issue as one of the red flags that the offering might be scam.
Every company must file and pay annual taxes in order to maintain its good standing in the state in which it was incorporated. If a company is not listed as active or in good standing, it could have wide-ranging implications, including not being able to enforce its contracts, and not being able to issue shares.
We analyzed companies that had launched a Reg CF offering…
This entry is filed under Crowdfunding, Blog
No, not a novel by Gabriel Garcia Marquez, but some musings on an aspect of the more complicated aspects of securities law relating to what needs to be registered under the Securities Act of 1933, part of what we law bores refer to as “the metaphysics.”
Some investments happen in two stages. You buy convertible notes and then they convert into shares. You are issued warrants and you exercise those warrants. You get the idea. The important thing from the point of view of registration under the Securities Act is that there are usually two separate transactions, and you have to examine both of those transactions to make sure each is registered under the Securities…
This entry is filed under Disclosure, Types of Securities, Blog
CrowdCheck CEO Sara Hanks spoke with Adam Gower of the NREForum Crowd Fund Project Podcast to talk compliance with online capital raising, JOBSAct regulations, securities crowdfunding and more.
Listen here or choose a service to download the podcast. http://nreforum.org/sara/
This entry is filed under Capital Raising, Fraud, Investing, Regulation
We keep saying that ICOs have not changed the securities laws and there’s no real magic to how to apply existing securities laws to ICOs. We are sure you’ve read our memo on the topic.
That’s certainly true when it comes to “bounty” or referral programs in the ICO space. In these programs, people get coin or tokens for spreading the word about an ICO offering.
Normal securities laws apply. ICOs have not warped the space-time continuum so as to apply the Securities Act of 1933 differently than other classes of securities.
This means, if your coin or tokens are securities:
The companies (and we hope you have formed an actual company) issuing the coin or token…
This entry is filed under Crowdfunding, ICO, Securities Law
While Section 4(a)(6) of the Securities Act and Reg CF preempt state regulation of offerings under Reg CF, states are still permitted to require notice filings be made. For Reg CF, rather than all 50 states plus the District of Columbia and other territories being able to require notice filings, only the state of the principal place of business of the company, and the state in which more than 50% of the securities are sold in the offering (if any) may require notice filings.
Based on the manner most state securities laws are written, many states must enact specific rules to require notice filings. Some state laws provide for notice filing requirements without…
This entry is filed under Crowdfunding, Section 4(a)(6), State Law
Following the release of the “Simple Agreement for Future Tokens” or “SAFT” documentation by Protocol Labs and Cooley LLP, the possibility of doing blockchain token sales has been expanded to companies at even earlier stages of development. When selling a token, companies needed to have more architecture developed with respect to their platforms so that they could issue tokens with rights that corresponded to the operations of those platforms. With the SAFT, those companies can sell securities to investors on the promise that tokens will become available to those investors when the platform is operational and the token rights are known.
While the SAFT is not…
This entry is filed under Capital Raising, ICO, Regulation A, Section 4(a)(6), Securities Law
Here's another issue addressed in our ever-expanding memo on the securities laws raised by ICOs.
Some founders and company insiders, including those who got their securities in “pre-sales,” may want to resell their tokens when secondary trading starts. Hold up there, Skippy. You may wish to consider a couple of things before you do that. First, might you be in possession of any “inside information”? That is, stuff you know about the company or the project that other investors don’t and which they might think is important when deciding to buy your tokens? Thought so. Don’t sell without making sure everybody else in the market has that same information. Second,…
This entry is filed under ICO, Regulation
(This is the first of what will be a series of blogs addressing ICO offerings made in compliance with securities laws. Click here to view our memo that will cover the topic more extensively.)
CrowdCheck is working on a Regulation A ICO. That means we are in effect trying to push a five-dimensional square peg into a two-dimensional hole that was dug in the 1930s (please refrain from trying to find me better analogies). There are a lot of issues that have to be addressed. One we are looking at at the moment is Section 12(g) of the Securities Exchange Act. Section 12(g) says that if you have assets of $10 million and a certain number of “holders of record” of a…
This entry is filed under Crowdfunding, ICO, Investing, Regulation A, Rule 506(c), SEC, Types of Securities